The Micro-Level Anatomy of the Labor Share Decline

54 Pages Posted: 26 Nov 2018

See all articles by Matthias Kehrig

Matthias Kehrig

Duke University; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Nicolas Vincent

HEC Montreal - Institute of Applied Economics

Multiple version iconThere are 2 versions of this paper

Date Written: November 2018

Abstract

The aggregate labor share in U.S. manufacturing declined from 62 percentage points (ppt) in 1967 to 41 ppt in 2012. The labor share of the typical U.S. manufacturing establishment, in contrast, rose by over 3 ppt during the same period. Using micro-level data, we document a number of striking facts: (1) there has been a dramatic reallocation of value added to "hyper- productive" (HP) low-labor share establishments, with much more limited reallocation of inputs; (2) HP establishments have only temporarily lower labor shares that rebound after five to eight years to the level of their peers; (3) selection into HP status has become increasingly correlated with past size; (4) low labor shares are driven by high revenue total factor productivity (TFPR), not low wages; (5) employment has become less responsive to positive TFPR shocks over time; and (6) HP establishments enjoy a product price premium relative to their peers that causes their high (revenue) productivity, pointing to a significant role for demand-side forces. Counterfactual exercises indicate that selection along size is the primary driver of the fall in the aggregate labor share, with a smaller role for the decline in responsiveness.

Keywords: firm size distribution, Labor Share, productivity, Relative Prices

JEL Classification: E2, L1, L2, L6, O4

Suggested Citation

Kehrig, Matthias and Vincent, Nicolas, The Micro-Level Anatomy of the Labor Share Decline (November 2018). CEPR Discussion Paper No. DP13333, Available at SSRN: https://ssrn.com/abstract=3290525

Matthias Kehrig (Contact Author)

Duke University ( email )

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HOME PAGE: http://sites.google.com/site/matthiaskehrig/research

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Nicolas Vincent

HEC Montreal - Institute of Applied Economics ( email )

3000, ch. de la Côte-Ste-Catherine
Montréal, Quebec H3T 2A7
Canada

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